Income investors should know that Superior Group of Companies, Inc. (NASDAQ:SGC) will soon become ex-dividend

It looks like Superior Group of Companies, Inc. (NASDAQ:SGC) will go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date, which is the date on which shareholders must be on the company’s books to receive a dividend. The ex-dividend date is an important date to keep an eye on, as any purchase of the shares on or after this date may mean a delayed settlement that will no longer be reflected on the record date. In other words, investors can purchase Superior Group of Companies shares before August 16 to be eligible for the dividend, which will be paid on August 30.

The company’s next dividend payment will be $0.14 per share. Last year, the company paid out a total of $0.56 to shareholders. Based on last year’s payments, Superior Group of Companies has a yield of 4.4% on the current share price of $12.65. Dividends are an important contributor to investment returns for long-term holders, but only if the dividend continues to be paid. We need to see if the dividend is covered by earnings, and if it is growing.

Check out our latest analysis for Superior Group of Companies

If a company pays out more in dividends than it earns, the dividend may become unsustainable – far from an ideal situation. The dividend payout ratio is 80% of profits, meaning the company is paying out the majority of its earnings. The relatively limited profit reinvestment could hold back future earnings growth. The risk of earnings decline would worry us. However, even highly profitable companies sometimes don’t generate enough money to pay the dividend, which is why we should always check if the dividend is covered by cash flow. On the positive side, dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

It’s positive to see that Superior Group of Companies’s dividend is covered by both profits and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio usually indicates a greater margin of safety before the dividend gets cut.

Click here to see the company’s payout ratio as well as analyst estimates of its future dividends.

Have earnings and dividends increased?

Companies with declining earnings are riskier for dividend shareholders. Investors love dividends, so when earnings fall and the dividend is cut, expect the stock to be sold off massively at the same time. With that in mind, we are concerned about Superior Group of Companies’ 10% annual earnings decline over the past five years. When earnings per share fall, the pie from which dividends can be paid ultimately shrinks.

Another important way to gauge a company’s dividend prospects is to measure its historical dividend growth rate. Over the past 10 years, Superior Group of Companies has increased its dividend by an average of about 7.6% per year. The only way to pay higher dividends when profits are shrinking is to either pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Superior Group of Companies already pays out 80% of its profits, and with shrinking profits, we think it’s unlikely this dividend will rise quickly in the future.

Last Takeaway

Should investors buy or avoid Superior Group of Companies from a dividend perspective? Payout ratios are in a reasonable range, suggesting the dividend could be sustainable. However, falling earnings are a serious problem and could pose a threat to the dividend in the future. All in all, we are not particularly enthusiastic about Superior Group of Companies from a dividend perspective.

If dividends are not your biggest concern with Superior Group of Companies, you should be aware of the other risks this company faces. For example, we found 2 warning signs for the Superior Group of Companies that you should consider before investing in the company.

A common mistake when investing is to buy the first interesting stock you see. Here you can find a complete list of high dividend stocks.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.